Dark hour for stocks in Chinese mainland may herald dawn of opportunity for US investors

By Wang Jiamei Source:Global Times Published: 2018/12/20 19:53:53

The darkest hour for the Chinese stock market may be the best time for investors to ditch US equities and increase their holdings of Chinese stocks.

While the US Federal Reserve on Wednesday hiked its benchmark interest rate again by one-quarter percentage point, it cut its outlook for the US economy in 2019, resulting in a stock market plunge. Any sign of economic softening could now unsettle the US stock market and spook investors, considering the high levels of stock indices.

With the Dow Jones Industrial Average and the Standard & Poor's 500 almost quadrupling over the past decade, valuations may be peaking in the US, which means that corrections will be inevitable and largely negative in the months or even years to come.

It is time for US investors with a long-term outlook to consider shifting funds into Chinese stocks.

Since mid-September, overseas individuals working on the Chinese mainland have been allowed to trade A shares.

It is undeniable that worries over the trade war and China's economic fundamentals have weighed on local market sentiment this year, leading to the bearish performance of Chinese stocks.

As of Thursday, the benchmark Shanghai Composite Index was down 23.31 percent so far this year, while the Shenzhen Component Index had plunged by a stunning 32.73 percent.

But these declines may offer prime opportunities for investors who believe in valuation to step in as Chinese stocks may be near their bottom levels. For instance, Shanghai-listed A shares had an average price-to-earnings ratio - a gauge of stock valuation - of just 12.7, much lower than in the US.

Moreover, there are signs that the Chinese government is planning, initiating and implementing measures to stabilize economic growth. While reiterating stability as the top priority, the Political Bureau of the Communist Party of China Central Committee held a meeting on December 13 proposing for the first time the idea of "boosting market confidence," which observers said indicates more policies aimed at stimulating the market are coming in the near future.

In another positive sign, Sun Ruibiao, deputy chief of the State Administration of Taxation, said at a forum in Beijing on Thursday that China will study and embark on a new round of comprehensive tax cuts to support the real economy.

With Chinese stock valuations at historical lows and measures to boost confidence on the way, there is no need for US investors to hesitate and time the market. Just step in at this most opportune time, before it's too late.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn